AGL Energy Limited Level 22, 120 Spencer T: 02 99212516 ABN: 74 115 061 375 Street101 Miller Street www.agl.com.au North Sydney NSW 2060

27 February 2015

Select Committee on Wind Turbines PO Box 6100 Parliament House Canberra ACT 2600

By email: [email protected]

Dear Sir/Madam,

AGL submission to Senate Select Committee on Wind Turbines

AGL Energy (AGL) welcomes the opportunity to make a submission to the Senate Select Committee on Wind Turbines. As a leading investor in many types of energy production, AGL is well placed to comment on the regulatory and economic factors relevant to wind turbines. AGL operates across the supply chain and has investments in -fired, gas-fired, and renewable electricity generation and upstream gas exploration and production projects. AGL is ’s largest private owner, operator and developer of renewable generation and is also a significant retailer of energy with over 3.8 million electricity and gas customers in , , and . AGL is a relatively unique participant in the Australian industry, with interaction spanning three aspects: 1. Liable entity under the Renewable Energy Target (RET) scheme – each year AGL must surrender sufficient numbers of both large- and small- scale renewable energy certificates to meet its obligations under the RET.

2. Small scale renewable energy technology installer – AGL installs a range of small scale renewable energy systems, including solar PV and solar hot water systems.

3. Large scale renewable energy developer and operator – AGL has the largest privately owned/or operated renewable energy portfolio in Australia, having invested over $3 billion in utility scale renewable generation assets over the past decade. AGL’s portfolio includes 1,766 MW of operational wind, hydro, and biofuel electricity generation capacity, with a further 155 MW of large scale solar under construction. AGL recognises that is a very important issue facing the global community, and supports the Commonwealth Government’s commitment to work towards a global agreement to limit global warming to 2 degrees Celsius above pre-industrial levels. The achievement of this goal is likely to require significant decarbonisation of the electricity sector by mid-century and both renewable and lower-emission fossil fuel generation will be an integral part of the energy generation mix. AGL is a strong supporter of renewable energy and supports regulatory and market mechanisms to effectively incentivise: the new investment in low-emissions electricity generation required to effect this market transformation; and the exit of older emissions-intensive power stations.

Economics of renewable energy The most critical issue concerning the industry in Australia is the intractability of new investment in large scale renewable energy projects. Until stable and long-term renewable energy policies are established, and the oversupply of generation capacity in wholesale electricity markets is resolved, it is unlikely that any material new wind developments will occur as projects are unlikely to receive sufficient revenue to be economically sustainable. While this situation persists, subsequent

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questions around the reform of planning policy and other regulation for wind farms may not be relevant. The Renewable Energy Target Australia’s large-scale renewable energy sector is experiencing significant challenges, with a number of issues making additional investment very difficult. The primary policy mechanism to incentivise the development of new renewable energy is the RET. The RET requires electricity retailers to source renewable energy through the annual surrender of large- and small-scale Renewable Energy Certificates (LGCs and STCs, respectively) which are created through the generation of electricity by renewable energy projects. If a retailer fails to surrender its required allocation of certificates, it will incur a penalty charge. Retailers acquire these certificates by sourcing them from the market, via long-term offtake agreements with third party renewable project developers, or through the development of their own projects. Currently, the lowest cost utility scale renewable energy is produced by wind farms. Most large scale projects under the RET to date have been wind farms, and virtually all development in Australia has occurred as a direct result of this scheme. The cost of the RET scheme is ultimately borne by electricity consumers, as retailers will recover the cost of acquiring renewable energy certificates in a competitive retail market. A recently published academic article by two AGL economists estimates that in 2012/13, the cost of the large-scale RET scheme (LRET) added approximately $27 to the average annual household electricity bill ($4.45 per MWh of consumption), or about 1.6%. This is forecast to increase to $8 per MWh in 2020, or around 3%1. Investment challenges Wind farms operating within wholesale energy markers receive two streams of revenue: the wholesale value of the generated electricity traded in the market, and the value of the LGCs produced by renewable projects as a result of the RET. The convergence of a number of factors has made the development of new projects economically unfeasible, because under current circumstances, the sum of these revenue streams will be insufficient over the project life to justify the capital expenditure. These factors include:  Electricity demand in the National Electricity Market (NEM) has declined in recent years due to the closure of some large manufacturing facilities, improvements in energy efficeicy and the uptake of rooftop solar PV; Forecast demand growth for the foreseeable future is low.  There is a prevailing substantial oversupply of generation capacity in the NEM. The Australian Energy Market Operator (AEMO) estimates the surplus to be around 9,000 MW, and that no new generation capacity will be required in the next ten years to meet electricity demand. As a result, wholesale electricity prices are well below the level required to incentivise new investment.  Despite significant surplus capacity, there appear to be barriers to exiting the market for coal-fired power stations nearing the end of their design lives, such as significant site remediation costs and ongoing uncertainty in relation to climate change, renewable, and broader energy policies2.  Uncertainty persists in relation to the RET and other energy policies. There is not a long- term bipartisan approach, which is required to provide certainty for investors seeking to develop long-lived power generation assets. The trading price of LGCs reflects this policy uncertainty3. At current LGC and wholesale electricity market prices, new investments in wind projects and other renewable energy projects cannot be justified economically. Given the market based policy mechanism of the RET and the energy-only market design of the NEM in particular, it is inconceivable that the investment in large scale renewable projects required to meet the RET will be forthcoming without complementary policy being introduced. Given this situation, AGL does not believe the RET is the appropriate mechanism to support investment in renewable energy without complementary policies aimed at resolving wholesale market oversupply to facilitate new renewable energy investment.

Community consultation and economic benefits AGL operates seven wind farm projects including the Hallett 1, Hallett 2, Hallett 4, Hallett 5 and Wattle Point Wind Farms in South Australia, and the Oaklands Hill and Macarthur Wind Farms in Victoria. Additionally, AGL has two wind projects under development: the in

1 See “The Outlook for Residential Electricity Prices in Australia’s National Electricity Market in 2020”, available for download here: http://www.sciencedirect.com/science/article/pii/S1040619013000870 2 See “Energy-only markets and renewable energy targets: complementary policy or policy collision?” available for download here http://aglblog.com.au/2014/08/agl-working-paper-43-available/ for further information. 3 See “An analysis of Australia's large scale renewable energy target: Restoring market confidence” available for download here: http://www.sciencedirect.com/science/article/pii/S0301421513007398 for further information.

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New South Wales and the in Queensland (although the development of these projects has slowed significantly due to prevailing economic conditions). AGL is committed to developing and operating its projects in a responsible manner to ensure that they have minimal impacts on the environment, public health, and general amenity, and a positive impact on local communities overall. Economic benefits AGL believes that the wind energy industry is very significant to the , and particularly regional Australia. Wind energy jobs are created through the development, construction and ongoing operation of wind farms, which in turn continue to develop Australia’s clean technology skills base in a competitive global market. The benefits of wind farms to a local region are not confined to the initial investment in the project. They also provide a reliable income stream for landowners, significant increases to rates paid to councils, direct employment opportunities for locals and flow-on employment for local businesses through provision of products and services to the project and its employees. AGL commissioned an independent study in 2010 to investigate the economic impacts of AGL’s Hallett Wind Farms, which found that these projects contributed substantially to the regional South Australian economy4. The comprehensive study, prepared by consultants Sinclair Knight Merz (SKM), focused on the mid-north region (encompassing the Regional Council of Goyder, Northern Areas Council and Clare and Gilbert Valley Council areas) and quantified the economic benefits these projects have provided, particularly in terms of boosting local businesses and creating employment. For instance, it found that for every job created directly by the wind farms, at least three further jobs are created indirectly. Key findings of the report included:  By the completion of the Hallett 1, 2, 4 and 5 Wind Farms, $897 million would be spent on the wind farm projects’ construction and development, including $111 million spent in the local region (as of mid-2010 at the time of report publication, the actual figures were $800 million, and $88 million respectively). It was estimated that the construction would add 3.3% to the Gross Regional Product in 2010.  Regional expenditure due to operational activities of these projects was expected to total $12.5 million per year for the operational life of the wind farms, adding some 1.15% to the Gross Regional Product;  An average of 98 construction workers were directly employed on the project sites between late 2005 to June 2010;  15 locals had been directly employed at that time to operate and maintain the wind farms (expected to increase to 36 on completion of stages 1, 2, 4 and 5); and  Over $110,000 had been allocated to date into regional Community Funds to support local clubs, associations and events. AGL also commissioned SKM to undertake an assessment of the economic impacts of the Oaklands Hill and Macarthur Wind Farms in Victoria, with the report released in November 20125. Similarly, this report quantified the economic benefits that these projects have provided to the local regions. Key findings included:  For the 420 MW (which was under construction at the time of publication), the total spend on project development and construction was expected to reach $984 million by its completion. Economic modelling estimated that the Gross Value Added by the project to date in the local region (i.e. the value of the related goods and services) was $119 million (and $458 million across Victoria), and that in 2011 it raised the Gross Regional Product by 0.79%.  A total of $194.5 million had been spent on the development and construction of the 63 MW Oaklands Hill Wind Farm, and a further $1.7 million was spent in the first six months’ of operation. The Gross Value Added by the project to date was estimated to be $27.7 million and it was estimated to have raised the Gross Regional Product by 0.25% in 2011.  The annual average employment created by the projects during their development and construction phases was substantial. In the local region, the Macarthur project created 719 direct, indirect and induced jobs (including 478 direct), and the Oaklands Hill project created 156 jobs (including 95 direct); Across Victoria, Macarthur created 1973 jobs (595 direct) and Oaklands Hill created 517 jobs (153 direct).

4 The full SKM report on the Hallett Wind Farms can be accessed here: http://www.agl.com.au/~/media/AGL/About%20AGL/Documents/How%20We%20Source%20Energy/Wind%20Environment/H allett5%20Wind%20Farm/Assessments%20and%20Reports/2010/July/AGL%20Final%20Economic%20Impact%20Report.pdf 5 The full SKM report on the Macarthur and Oaklands Hill Wind Farms can be accessed here: http://www.agl.com.au/~/media/AGL/About%20AGL/Documents/How%20We%20Source%20Energy/Wind%20Environment/Coo pers%20Gap%20Wind%20Farm/Assessment%20and%20Reports/2011/Missing%20PDFs/Victoria%20Economic%20Impact%2 0Assessment%20MWF%20and%20OHWF.pdf

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 There is also ongoing employment creation due to the operation and maintenance of the projects. The operation of Macarthur Wind Farm will create a further 41 jobs in the local region, and 103 in Victoria (direct jobs of 17 and 28, respectively). The operation of Oaklands Hill will create 11 jobs in the local region and 31 jobs in Victoria (4 and 9 direct jobs, respectively).  The operations and maintenance cost per annum over the life of the projects is expected to be $16.7 million for Macarthur and $2.5 million for Oaklands Hill. Community consultation AGL accepts that the development of large scale projects can cause anxiety in local communities. To mitigate this, AGL recognises the need for effective standards for large scale projects and for engagement and communication with communities throughout the process of wind farm development, construction and operation. AGL seeks to ensure effective and meaningful engagement with local communities through a range of channels. AGL establishes Community Consultative Committees (CCCs) early in the wind farm development process, which continue throughout the development and construction phases. Once projects are operational, ongoing community engagement takes various forms depending on the project, such as continued CCC’s or the establishment of local renewable energy information centres (as AGL has done at Burra, near the Hallett wind farms in South Australia). AGL participates in regular CCC meetings in each of the communities in which its wind farms are located or proposed. The CCC brings together key representatives of the local community to provide an opportunity to raise questions, voice concerns, build relationships and to provide a forum for AGL to communicate with communities about its operations. Local Council participation is essential in instilling community confidence in wind energy and the planning process, and for all projects AGL seeks to collaborate closely with local Councils which form a key part of CCC deliberations. To balance community welfare and investor confidence, AGL considers that robust Council and community engagement, such as a CCC, should be a requirement of all wind energy project developments. AGL also contributes to the communities neighbouring its wind farm projects on an ongoing basis, and will do so for the life of the projects. AGL is proud to contribute to the infrastructure and wellbeing of these communities. For example, in the 12 months to June 2014:  The Macarthur Wind Farm Community Fund donated $50,000 to a range of community organisations, including for sporting facilities, health equipment and venue upgrades. An additional $40,000 was provided as a sponsorship for local firefighting vehicles, and $12,500 in sponsorship was provided to local students for educational travel.  The AGL Community Fund donated $15,000 to local community, sporting and business groups.  The Community Fund donated $33,000 for local health and conservation campaigns, and for the upgrade of community facilities and sporting grounds. AGL’s experience is that community contributions work well if they are negotiated with local Councils or community groups to reflect their specific needs. Property values There are no Australian studies demonstrating a causal link between wind farms and negative impacts on local property values. For wind farms, as with other developments, impact guidelines are set with the intention of protecting amenity and implicitly, neighbour property values. The most appropriate bodies to comment on the impact of wind projects on property values are those experienced in such assessments. The most recent comprehensive Australian study on land values and wind farms was undertaken by the NSW Valuer-General in 2009. The study found no impacts from wind farms on the sale prices of rural and township properties. Overall, the study found no statistical evidence to substantiate the claim that wind farms harm land values. This is consistent with the findings of major international studies.

Safety, noise and environmental impacts AGL’s primary concern for new and existing projects is the safety of workers and communities. AGL is committed to operating its wind farms in a manner that is safe and is in accordance with community expectations and planning conditions in relation to noise, amenity and protection of the environment. At all stages of the development of a wind farm, and throughout its operational life and eventual decommissioning, AGL insists on the highest operational standards and compliance with all relevant statutory health, safety and environmental responsibilities and the law. Noise AGL recognises that wind turbines - like other power generators - produce noise. The expected noise levels can be predicted with a high degree of accuracy, with wind farms designed to meet noise guidelines. AGL considers that noise limits should be applied to wind projects as part of the planning

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process to reassure local communities and provide certainty to developers. Such regulation falls within the jurisdiction of state planning authorities, with each state adopting either its own guidelines, referring to established international standards, or a combination of both. New wind farm projects are subject to noise monitoring before construction commencement and then for a period of time following commissioning. This approach provides for a comparison of noise in the environment before the wind farm becomes operational and then under operational conditions to validate compliance with noise regulations and planning conditions. For example, over 40,000 hours of noise monitoring was conducted at AGL’s Macarthur Wind Farm with the results demonstrating the compliance of the project with the acoustic requirements of the Planning Permit. In the event of exceedance of limits, the developer is obliged to make good and retest. AGL has in the past restricted turbine usage at another project with underperforming turbines until a solution was sourced and retesting conducted. In addition to regulatory noise monitoring, AGL also undertook a voluntary investigation into the infrasound levels at the Macarthur Wind Farm (with results released in 2013) to further alleviate community concerns around noise. The research measured infrasound and low frequency noise at residences located 2.7 and 1.8 kilometres from the nearest turbine before any turbines were operating, when approximately 105 of 140 turbines were operating and when all 140 turbines were operating. This research demonstrates that there was no measurable change in the infrasound levels measured before and after construction of the Macarthur Wind Farm6. AGL considers that other wind farms would present similar results, particularly given the results of 2013 South Australian EPA environmental noise testing7, which found that: Overall the study indicates that measured infrasound levels at rural locations both near to and at a distance away from wind farms were no higher than infrasound levels measured at urban locations. The regulation of wind farms is be informed by professional advice and the results of rigorous health and wellbeing research, such as conducted by the Federal Government’s National Health, Medical & Research Council (NHMRC), which AGL considers appropriate. While AGL is not qualified to comment on epidemiology it notes that globally:  There are hundreds of thousands of wind power turbines operating;  Fewer than 200,000 people are estimated to live within 2kms of a wind turbine8;  No peer reviewed studies have identified any health impacts on high exposure groups such as wind farm technicians;  No peer reviewed medical publications have presented adverse effects from wind turbines; and;  It has been reported that SA Health has not identified health impacts from wind turbines. In recent years, several studies and reviews have been undertaken to explore the potential link between wind farm operation, related noise and infrasound and human health impacts. The NHMRC has undertaken detailed reviews of evidence relating to wind farms and human health, and released an updated statement in February 2015, which found in summary: Examining whether wind farm emissions may affect human health is complex, as both the character of the emissions and individual perceptions of them are highly variable. After careful consideration and deliberation of the body of evidence, NHMRC concludes that there is currently no consistent evidence that wind farms cause adverse health effects in humans. Given the poor quality of current direct evidence and the concern expressed by some members of the community, high quality research into possible health effects of wind farms, particularly within 1,500 metres (m), is warranted. AGL will continue to support high quality and well-designed research relating to wind energy. In 2014, the Australian Medical Association (AMA) also released a position statement stating: The available Australian and international evidence does not support the view that the infrasound or low frequency sound generated by wind farms, as they are currently regulated in Australia, causes adverse health effects on populations residing in their vicinity. The infrasound and low frequency sound generated by modern wind farms in Australia is well below the level where known health effects occur, and there is no accepted physiological mechanism where sub-audible infrasound could cause health effects.

6 The report can be accessed here: http://www.agl.com.au/~/media/AGL/About%20AGL/Documents/How%20We%20Source%20Energy/Wind_Farms/Macarthur_20 14_Update/130724_Resonate%20Acoustics%20MWF%20infrasound%20report.pdf 7 For further information, see http://www.epa.sa.gov.au/environmental_info/noise/wind_farms 8 Estimate based on 230,000 wind turbines with an average of 30 wind turbines per wind farm and 30 people living within 2kms of each wind farm.

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Planning AGL supports rigorous and scientifically-based regulatory frameworks to respond to community questions and concerns, rather than arbitrary planning restrictions such as multi-kilometre setback proposals. AGL believes that such measures are inconsistent with established planning principles, especially in the absence of a clear statement of policy considerations, including the scientific data. AGL is also not aware of any independent scientific findings which support the principle of a setback area around a wind turbine as being necessary to mitigate risks of potential health and noise impacts. Firefighting and aviation Wind farm infrastructure includes substantial roads and tracks which promote easy access for firefighting and emergency services. AGL’s wind farms have assisted in containing bush fires through wind farm roads acting as firebreaks. For example, a grass fire in South Australia was able to be contained by an AGL wind farm firebreak in December 2011. In February 2015, Victoria’s Emergency Management Commissioner, Craig Lapsley, rejected claims that reducing ‘buffer zones’ between wind turbines and homes would negatively impact firefighting efforts. He noted that when planning for aerial firefighting they “are aware of wind farms and they build that into their plan and we haven't had any example where it's restricted our fire operations”. The location of AGL’s wind farms are notified to the Civil Aviation Safety Authority via the NOTAM (notes to airmen) process. To date all AGL turbines have a tip height of less than 150 metres and as a consequence do not feature aviation lighting. No substantiated impacts on aerial have been notified to AGL at any of its wind farms. Environmental impacts When developing new wind farm projects, AGL conducts extensive surveys to assess the potential impacts that the project could have on surrounding flora, vegetation, soil and fauna. Development of a wind farm is subject to existing rigorous State and Federal environmental legislation such as the Commonwealth Environmental Protection and Biodiversity Conservation Act. As a guide, typically a wind farm development disturbs less than 2% of the land area of the properties on which it is located. AGL believes that these impacts can be managed appropriately in all cases. Where required by planning permits, AGL undertakes monitoring programs to estimate the frequency of bird and bat deaths as a result of collision with wind turbines. In the first 12 months of monitoring at the Macarthur Wind Farm, an estimated mortality rate of 1.3 birds per turbine per year was observed, as well as 0.1 bats per turbine per year. Importantly, the effects on threatened species were found to be negligible, and no collisions with the primary avian species of concern at the site (brolga) were observed. These results appear to be reasonably consistent with other wind farms, and should be considered alongside other much more significant causes of avifauna mortality, including collision with buildings and vehicles, and feral animals.

Closing remarks AGL is committed to operating its wind farms in a safe and responsible way, to deliver benefits for local communities and the environment. AGL’s wind farms in South Australia and Victoria, and projects in development in New South Wales and Queensland, are required to operate to rigorous planning conditions and regulatory standards, which in our experience generally ensure high performance, ensure non-compliances are readily identified and rectified, and provide communities with the information required to understand and have confidence in these projects. AGL is proud of its wind farm investments and the associated positive community impacts. Over the past decade, the growth of has contributed significantly to reducing emissions from the electricity sector. Significant additional investment in renewable generation will be required for further decarbonisation, however, new projects are currently not economically feasible due to ongoing policy uncertainty and oversupplied wholesale energy markets. Resolving these issues will be key to restoring investor confidence. Should you have any questions or comments, please contact myself or Fiona Orton

Yours sincerely,

Tim Nelson Head of Economic Policy and Sustainability AGL Energy Limited

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